The Myth of the Battered American Manufacturer

I’ve always enjoyed reading columns by Alan Reynolds as he takes the time to really peel back the onion on data and statistics. Occassionally I’ll disagree with his conclusions, but his commentary is always thought-provoking. He often writes about issues pertinent to the manufacturing industry.

A few weeks ago he had an article in the Investor’s Business Daily on some of the myths of American manufacturing. For example, most people believe that manufacturing has been declining (Myth #1). The reality is that U.S. manufacturing output rose 5.7% a year from 1995 to 2000, greater than the 3.7% annual increase during the preceding five years. From 2003-2004 manufacturing GDP grew at 4.4% per year, greater than the overall GDP.

Myth #2: Imports are hurting manufacturing. Again, the reality is that imports have grown rapidly only when U.S. manufacturing is expanding, and imports shrink only when overall manufacturing declines such as in 2001. Industrial supplies and equipment, not final products, account for more than half of all imports. U.S. exports rose an average of 6% per year from 1990 to 2001, twice as fast as exports from Japan. And the kicker: U.S. exports to China have risen by an astonishing 25% per year for the past two years alone.

Myth #3: The U.S. is losing manufacturing jobs to other countries. The reality is that productivity gains are causing big job losses everywhere, and the U.S. is actually faring much better than other countries. The U.S. lost 20% of its manufacturing jobs from 1991 to 2004, while Germany lost 25.8% and Japan lost 28.5%. But here’s this myth’s kicker: China has also lost 8.5 million manufacturing jobs over the past 8 years. Trade with China is as misunderstood today as it was with Germany and Japan in the early 1990’s, when Clinton and Gore claimed we were losing manufacturing jobs to them.

China is obviously growing and will most likely become a top tier of economic powerhouse over the next decade or two. But it is important to keep it in perspective and avoid the rush to restrict free markets… which would just mean that U.S. manufacturing firms (as well as our citizens) would be forced to pay higher prices than rivals in other industrial countries.